RE/MAX Holdings Reports Second Quarter 2017 Results

DENVER - Aug. 3, 2017 // PRNewswire // -

Second Quarter 2017 Highlights
(Compared to second quarter 2016 unless otherwise noted)

  • Total agent count grew by 5.7% to 116,270 agents
  • U.S. and Canada combined agent count increased 2.8% to 84,302 agents
  • Revenue increased 12.5% to $48.8 million
  • Net income attributable to RE/MAX Holdings, Inc. of $7.5 million and earnings per diluted share (GAAP EPS) of $0.42
  • Adjusted EBITDA1 of $29.2 million, Adjusted EBITDA margin1 of 59.7% and Adjusted earnings per diluted share (Adjusted EPS1) of $0.54
  • Announced $0.18 quarterly dividend on August 2, 2017

RE/MAX Holdings, Inc. (the "Company" or "RE/MAX Holdings") (NYSE: RMAX), parent company of RE/MAX, one of the world's leading franchisors of real estate brokerage services, and Motto Mortgage ("Motto"), an innovative mortgage brokerage franchise, today announced operating results for the quarter ended June 30, 2017.

"Execution on our core business drivers and a robust housing market drove increased agent count and double-digit revenue growth year-over-year," stated Adam Contos, Co-Chief Executive Officer. "Our ability to expand our network, reacquire independent regions, and grow Motto Mortgage provides us with multiple levers of growth."

Contos continued, "For the third year in a row, RE/MAX agents and teams named 'America's Best Real Estate Agents' outnumbered every other brand according to REAL Trends' rankings. One out of every five agents included in this year's survey is a member of our network. Our agents are incredibly dedicated to their clients and this ranking confirms that many of the industry's best are affiliated with RE/MAX."

Second Quarter 2017 Operating Results

Agent Count

The following table compares agent count as of June 30, 2017 and 2016:

               
 

As of June 30,

 

Change

 
 

2017

 

2016

 

#

 

%

 

U.S.

63,249

 

61,635

 

1,614

 

2.6%

 

Canada

21,053

 

20,336

 

717

 

3.5%

 

Subtotal

84,302

 

81,971

 

2,331

 

2.8%

 

Outside the U.S. & Canada

31,968

 

27,989

 

3,979

 

14.2%

 

Total

116,270

 

109,960

 

6,310

 

5.7%

 
                       

Revenue

RE/MAX Holdings generated total revenue of $48.8 million for the second quarter of 2017, an increase of $5.4 million or 12.5% compared to $43.4 million in the second quarter of 2016, primarily due to contributions from the acquired independent regions, agent count growth and fee increases in the Company-owned regions.

Recurring revenue streams, which consist of continuing franchise fees and annual dues, increased $3.7 million or 13.3% over the second quarter of 2016 and accounted for 64.7% of revenue in the second quarter of 2017 compared to 64.3% in the prior-year period.

Operating Expenses

Total operating expenses were $26.0 million for the second quarter of 2017, an increase of $3.3 million or 14.6% compared to the second quarter of 2016. This increase was due to additional amortization expense from the acquired independent regions as well as increased selling, operating and administrative expenses, many of which related to the acquired independent regions and the initial investment in Motto.

Selling, operating and administrative expenses were $20.6 million in the second quarter of 2017, an increase of $1.8 million or 9.5% from the second quarter of 2016 and represented 42.3% of revenue compared to 43.4% in the prior-year period. Expenses increased primarily due to continued investments in Motto and higher professional fees and other expenses, including costs related to the acquired independent regions and investments to support the Company's technology infrastructure.

Net Income and GAAP EPS

Net income attributable to RE/MAX Holdings was $7.5 million for the second quarter of 2017, an increase of $0.6 million or 8.2% from the second quarter of 2016. Net income grew primarily due to the contribution from acquired independent regions, agent count growth and fee increases in the Company-owned regions. The increase was partially offset by higher amortization expense and operating expenses, as well as a decrease in revenue from preferred marketing arrangements. Reported basic and diluted EPS attributable to RE/MAX Holdings were $0.43 and $0.42 per share, respectively, for the second quarter of 2017.

Adjusted EBITDA and Adjusted EPS

Adjusted EBITDA was $29.2 million for the second quarter of 2017, an increase of $3.9 million or 15.3% from the second quarter of 2016. Adjusted EBITDA grew primarily due to contributions from the acquired independent regions, agent count growth and fee increases in the Company-owned regions, partially offset by investments in Motto and a decrease in revenue from preferred marketing arrangements. Adjusted EBITDA margin was 59.7% in the second quarter of 2017 compared to 58.3% in the second quarter of 2016.

Adjusted basic and diluted EPS were both $0.54 for the second quarter of 2017. The ownership structure used to calculate Adjusted basic and diluted EPS for the quarter ended June 30, 2017 assumes RE/MAX Holdings owned 100% of RMCO, LLC ("RMCO"). The weighted average ownership RE/MAX Holdings had in RMCO was 58.5% for the three months ended June 30, 2017.

Balance Sheet

As of June 30, 2017, the Company had a cash balance of $70.3 million, an increase of $12.7 million from December 31, 2016. As of June 30, 2017, RE/MAX had $229.9 million of term loans outstanding, net of unamortized debt discount and issuance costs, essentially flat compared with $230.8 million as of December 31, 2016.

"We generated nearly $32 million in free cash flow during the first half of 2017, highlighting the growth and positive cash flow characteristics of our business model," said Karri Callahan, Chief Financial Officer. "Second quarter margins, while benefiting from the favorable timing of expenses, also showcased the inherent leverage in our 100%-franchised business. Certain investments initially planned for the second quarter are now anticipated to occur in the second half of the year and are reflected in our third-quarter and full-year 2017 Outlook."

Dividend

On August 2, 2017, the Company's Board of Directors approved a quarterly cash dividend of $0.18 per share. The quarterly dividend is payable on August 30, 2017, to shareholders of record at the close of business on August 16, 2017.

Outlook

The Company's third-quarter and full-year 2017 Outlook assumes no further currency movements, acquisitions or divestitures.

For the third quarter of 2017, RE/MAX Holdings expects:

  • Agent count to increase 4.5% to 5.5% over third quarter 2016;
  • Revenue in a range of $49.0 million to $50.5 million;
  • Selling, operating and administrative expenses in a range of 46.0% to 47.5% of third quarter 2017 revenue; and
  • Adjusted EBITDA margin in a range of 54.0% to 55.5% of third quarter 2017 revenue.

For the full-year 2017, RE/MAX Holdings is increasing its agent count guidance, reiterating its full-year 2017 financial guidance and expects:

  • Agent count to increase 4.5% to 5.5% over 2016, up from 4.0% to 5.0%, driven by agent count growth outside the U.S. and Canada;
  • Revenue in a range of $194.0 million to $197.0 million;
  • Selling, operating and administrative expenses in a range of 48.0% to 49.5% of 2017 revenue; and
  • Adjusted EBITDA margin in a range of 52.5% to 54.0% of 2017 revenue.

The effective U.S. GAAP tax rate attributable to RE/MAX Holdings is estimated to be between 23% and 25% in 2017.

Webcast and Conference Call

The Company will host a conference call for interested parties on Friday, August 4, 2017, beginning at 8:30 a.m. Eastern Time. Interested parties are able to access the conference call using the following dial-in numbers:

  • U.S.
    1-877-201-0168
  • Canada & International
    1-647-788-4901

Interested parties are also able to access a live webcast through the Investor Relations section of the Company's website at investors.remax.com. Please dial-in or join the webcast 10 minutes before the start of the conference call. An archive of the webcast will be available on the Company's website for a limited time as well. For the RE/MAX Quarterly Update Q2 2017 infographic, visit http://rem.ax/2cYFT50.

Basis of Presentation

Unless otherwise noted, the results presented in this press release are consolidated and exclude adjustments attributable to the non-controlling interest.

About the RE/MAX Network

RE/MAX was founded in 1973 by David and Gail Liniger, with an innovative, entrepreneurial culture affording its agents and franchisees the flexibility to operate their businesses with great independence. Over 115,000 agents provide RE/MAX a global reach of over 100 countries and territories. Nobody sells more real estate than RE/MAX as measured by total residential transaction sides.

RE/MAX, one of the world's leading franchisors of real estate brokerage services, and Motto Mortgage, an innovative mortgage brokerage franchise, are subsidiaries of RMCO, LLC, which is controlled and managed by RE/MAX Holdings, Inc. (NYSE: RMAX).

Forward-Looking Statements

This press release includes "forward-looking statements" within the meaning of the "safe harbor" provisions of the United States Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by the use of words such as "believe," "intend," "expect," "estimate," "plan," "outlook," "project" and other similar words and expressions that predict or indicate future events or trends that are not statements of historical matters. These forward-looking statements include statements regarding the Company's outlook for the third quarter and full fiscal year, including expectations regarding agent count, revenue, SO&A (Selling, operating and administrative) expenses, and Adjusted EBITDA margins for its third quarter of 2017 and full fiscal year; the Company's focus in 2017 and over the long term on successfully growing its strategic initiatives related to its acquisition of six independent regions and the launch of Motto Mortgage; as well as other statements regarding the Company's strategic and operational plans and business models. Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of the times at, or by, which such performance or results will be achieved. Forward-looking statements are based on information available at the time those statements are made and/or management's good faith belief as of that time with respect to future events, and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. Such risks and uncertainties include, without limitation, (1) changes in business and economic activity in general, (2) changes in the real estate market, including changes due to interest rates and availability of financing, (3) the Company's ability to attract and retain quality franchisees, (4) the Company's franchisees' ability to recruit and retain real estate agents and mortgage loan originators, (5) changes in laws and regulations that may affect the business or the real estate market, (6) failure to maintain, protect and enhance the RE/MAX and Motto Mortgage brands, (7) fluctuations in foreign currency exchange rates, as well as those risks and uncertainties described in the sections entitled "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission ("SEC") and similar disclosures in subsequent periodic and current reports filed with the SEC, which are available on the investor relations page of the Company's website at www.remax.com and on the SEC website at www.sec.gov. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date on which they are made. Except as required by law, the Company does not intend, and undertakes no duty, to update this information to reflect future events or circumstances.

1 Adjusted EBITDA, Adjusted EBITDA margin and Adjusted EPS are non-GAAP measures. These terms are defined elsewhere in this release. Please see the schedules appearing later in this release for reconciliations of these non-GAAP measures to the most directly comparable GAAP measures.

TABLE 1

 

RE/MAX Holdings, Inc.

Condensed Consolidated Statements of Income

(Amounts in thousands, except share and per share amounts)

(Unaudited)

 
                         
   

Three months ended 

 

Six months ended

   

June 30, 

 

June 30, 

   

2017

 

2016

 

2017

 

2016

                         

Revenue:

                       

Continuing franchise fees

 

$

23,284

 

$

19,846

 

$

46,249

 

$

38,753

Annual dues

   

8,320

   

8,046

   

16,556

   

15,950

Broker fees

   

12,555

   

10,384

   

20,789

   

17,585

Franchise sales and other franchise revenue

   

4,660

   

5,128

   

13,454

   

13,921

Brokerage revenue

   

   

   

   

112

Total revenue

   

48,819

   

43,404

   

97,048

   

86,321

Operating expenses:

                       

Selling, operating and administrative expenses

   

20,637

   

18,842

   

47,431

   

42,074

Depreciation and amortization

   

5,397

   

3,872

   

11,392

   

7,593

(Gain) loss on sale or disposition of assets, net

   

(12)

   

(11)

   

(25)

   

96

Total operating expenses

   

26,022

   

22,703

   

58,798

   

49,763

Operating income

   

22,797

   

20,701

   

38,250

   

36,558

Other expenses, net:

                       

Interest expense

   

(2,462)

   

(2,091)

   

(4,816)

   

(4,372)

Interest income

   

25

   

35

   

50

   

86

Foreign currency transaction gains

   

39

   

20

   

16

   

184

Loss on early extinguishment of debt

   

   

   

   

(136)

Total other expenses, net

   

(2,398)

   

(2,036)

   

(4,750)

   

(4,238)

Income before provision for income taxes

   

20,399

   

18,665

   

33,500

   

32,320

Provision for income taxes

   

(4,762)

   

(4,285)

   

(7,792)

   

(7,544)

Net income

 

$

15,637

 

$

14,380

 

$

25,708

 

$

24,776

Less: net income attributable to non-controlling interest

   

8,108

   

7,419

   

13,266

   

12,875

Net income attributable to RE/MAX Holdings, Inc.

 

$

7,529

 

$

6,961

 

$

12,442

 

$

11,901

                         
                         

Net income attributable to RE/MAX Holdings, Inc. per share of Class A common stock

                       

Basic

 

$

0.43

 

$

0.39

 

$

0.70

 

$

0.68

Diluted

 

$

0.42

 

$

0.39

 

$

0.70

 

$

0.67

Weighted average shares of Class A common stock outstanding

                       

Basic

   

17,696,842

   

17,636,590

   

17,679,936

   

17,610,470

Diluted

   

17,723,802

   

17,668,995

   

17,720,564

   

17,653,433

Cash dividends declared per share of Class A common stock

 

$

0.18

 

$

0.15

 

$

0.36

 

$

0.30

                         

 

 

 

TABLE 2

 

RE/MAX Holdings, Inc.

Condensed Consolidated Balance Sheets

 (Amounts in thousands, except share and per share amounts)

(Unaudited)

             
   

June 30, 

 

December 31, 

   

2017

 

2016

Assets

           

Current assets:

           

Cash and cash equivalents

 

$

70,317

 

$

57,609

Accounts and notes receivable, current portion, less allowances of $6,141 and $5,535, respectively

   

20,580

   

19,419

Income taxes receivable

   

2,193

   

Other current assets

   

2,972

   

4,186

Total current assets

   

96,062

   

81,214

Property and equipment, net of accumulated depreciation of $12,623 and $12,196, respectively

   

2,987

   

2,691

Franchise agreements, net

   

99,036

   

109,140

Other intangible assets, net

   

9,332

   

9,811

Goodwill

   

127,081

   

126,633

Deferred tax assets, net

   

102,933

   

105,770

Other assets, net of current portion

   

1,729

   

1,894

Total assets

 

$

439,160

 

$

437,153

Liabilities and stockholders' equity

           

Current liabilities:

           

Accounts payable

 

$

344

 

$

855

Accounts payable to affiliates

   

14

   

145

Accrued liabilities

   

8,034

   

13,268

Income taxes payable

   

52

   

379

Deferred revenue and deposits

   

18,003

   

16,306

Current portion of debt

   

2,350

   

2,350

Current portion of payable pursuant to tax receivable agreements

   

11,390

   

13,235

Total current liabilities

   

40,187

   

46,538

Debt, net of current portion

   

227,551

   

228,470

Payable pursuant to tax receivable agreements, net of current portion

   

85,574

   

85,574

Deferred tax liabilities, net

   

143

   

133

Other liabilities, net of current portion

   

15,741

   

15,729

Total liabilities

   

369,196

   

376,444

Commitments and contingencies

           

Stockholders' equity:

           

Class A common stock, par value $0.0001 per share, 180,000,000 shares authorized; 17,696,991 shares issued and outstanding as of June 30, 2017; 17,652,548 shares issued and outstanding as of December 31, 2016

   

2

   

2

Class B common stock, par value $0.0001 per share, 1,000 shares authorized; 1 share issued and outstanding as of June 30, 2017 and December 31, 2016

   

   

Additional paid-in capital

   

447,478

   

447,001

Retained earnings

   

22,828

   

16,808

Accumulated other comprehensive income (loss), net of tax

   

188

   

(28)

Total stockholders' equity attributable to RE/MAX Holdings, Inc.

   

470,496

   

463,783

Non-controlling interest

   

(400,532)

   

(403,074)

Total stockholders' equity

   

69,964

   

60,709

Total liabilities and stockholders' equity

 

$

439,160

 

$

437,153

 

TABLE 3

 

RE/MAX Holdings, Inc.

Condensed Consolidated Statements of Cash Flow

(Amounts in thousands)

(Unaudited)

             
   

Six Months Ended June 30, 

   

2017

 

2016

Cash flows from operating activities:

           

Net income

 

$

25,708

 

$

24,776

Adjustments to reconcile net income to net cash provided by operating activities:

           

Depreciation and amortization

   

11,392

   

7,593

Bad debt expense

   

587

   

109

Loss on early extinguishment of debt

   

   

136

Equity-based compensation expense

   

1,293

   

1,311

Deferred income tax expense

   

2,701

   

2,529

Fair value adjustments to contingent consideration

   

(170)

   

Other, net

   

231

   

319

Changes in operating assets and liabilities

   

(8,801)

   

(9,741)

Net cash provided by operating activities

   

32,941

   

27,032

Cash flows from investing activities:

           

Purchases of property, equipment and software

   

(1,290)

   

(2,106)

Capitalization of trademark costs

   

(33)

   

(16)

Acquisitions, net of cash acquired of $0 and $131, respectively

   

   

(9,869)

Other investing activity, net

   

   

54

Net cash used in investing activities

   

(1,323)

   

(11,937)

Cash flows from financing activities:

           

Payments on debt

   

(1,175)

   

(13,734)

Distributions paid to non-controlling unitholders

   

(10,971)

   

(8,912)

Dividends and dividend equivalents paid to Class A common stockholders

   

(6,422)

   

(5,285)

Payments on capital lease obligations

   

(5)

   

(51)

Proceeds from exercise of stock options

   

   

101

Payment of payroll taxes related to net settled restricted stock units

   

(816)

   

(360)

Net cash used in financing activities

   

(19,389)

   

(28,241)

Effect of exchange rate changes on cash

   

479

   

508

Net increase (decrease) in cash and cash equivalents

   

12,708

   

(12,638)

Cash and cash equivalents, beginning of year

   

57,609

   

110,212

Cash and cash equivalents, end of period

 

$

70,317

 

$

97,574

             

 

 

TABLE 4

 

RE/MAX Holdings, Inc.

Agent Count

(Unaudited)

                             
       

As of

   

June 30,

 

March 31,

 

December 31,

 

September 30,

 

June 30,

 

March 31,

 

December 31,

   

2017

 

2017

 

2016

 

2016

 

2016

 

2016

 

2015

Agent Count:

                           

U.S.

                           

Company-owned Regions (1)

 

47,252

 

46,708

 

46,240

 

39,790

 

39,493

 

38,469

 

37,250

Independent Regions (1)

 

15,997

 

15,733

 

15,490

 

22,451

 

22,142

 

21,848

 

22,668

U.S. Total

 

63,249

 

62,441

 

61,730

 

62,241

 

61,635

 

60,317

 

59,918

Canada

                           

Company-owned Regions

 

6,893

 

6,786

 

6,713

 

6,728

 

6,701

 

6,580

 

6,553

Independent Regions

 

14,160

 

14,050

 

13,959

 

13,828

 

13,635

 

13,239

 

13,115

Canada Total

 

21,053

 

20,836

 

20,672

 

20,556

 

20,336

 

19,819

 

19,668

     U.S. and Canada Total

 

84,302

 

83,277

 

82,402

 

82,797

 

81,971

 

80,136

 

79,586

Outside U.S. and Canada

                           

Independent Regions

 

31,968

 

30,527

 

29,513

 

28,391

 

27,989

 

26,572

 

25,240

     Outside U.S. and Canada Total

 

31,968

 

30,527

 

29,513

 

28,391

 

27,989

 

26,572

 

25,240

Total

 

116,270

 

113,804

 

111,915

 

111,188

 

109,960

 

106,708

 

104,826

   

(1)

As of each quarter end since December 31, 2016, U.S. Company-owned Regions include agents in the Georgia, Kentucky/Tennessee and Southern Ohio regions, which converted from Independent Regions to Company-owned Regions in connection with the acquisition of certain assets of RE/MAX of Georgia, Inc., RE/MAX of Kentucky/Tennessee, Inc. and RE/MAX of Southern Ohio, Inc., collectively ("RE/MAX Regional Services"), including the regional franchise agreements issued by us permitting the sale of RE/MAX franchises in the states of Georgia, Kentucky and Tennessee and Southern Ohio, on December 15, 2016.  As of the acquisition date, the Georgia, Kentucky/Tennessee and Southern Ohio regions had 3,963 agents.  As of each quarter end since December 31, 2016, U.S. Company-owned Regions include agents in the New Jersey region, which converted from an Independent Region to a Company-owned Region in connection with the acquisition of certain assets of RE/MAX of New Jersey, Inc. ("RE/MAX of New Jersey"), including the regional franchise agreements issued by us permitting the sale of RE/MAX franchises in the state of New Jersey, on December 1, 2016.  As of the acquisition date, the New Jersey region had 3,008 agents.  As of each quarter end since June 30, 2016, U.S. Company-owned Regions include agents in the Alaska region, which converted from an Independent Region to a Company-owned Region in connection with the acquisition of certain assets of RE/MAX of Alaska, Inc. ("RE/MAX of Alaska"), including the regional franchise agreements issued by us permitting the sale of RE/MAX franchises in the state of Alaska, on April 1, 2016.  As of the acquisition date, the Alaska region had 245 agents.  In addition, as of each quarter end since March 31, 2016, U.S. Company-owned Regions include agents in the New York region, which converted from an Independent Region to a Company-owned Region in connection with the acquisition of certain assets of RE/MAX of New York, Inc. ("RE/MAX of New York"), including the regional franchise agreements issued by us permitting the sale of RE/MAX franchises in the state of New York, on February 22, 2016.  As of the acquisition date, the New York region had 869 agents. 

 

 

TABLE 5

 

RE/MAX Holdings, Inc.

Adjusted EBITDA Reconciliation to Net Income

 (Amounts in thousands, except percentages)

(Unaudited)

                           
 

Three months ended 

   

Six months ended

 
 

June 30, 

   

June 30, 

 
 

2017

 

2016

   

2017

 

2016

 

Net income

$

15,637

 

$

14,380

   

$

25,708

 

$

24,776

 

Depreciation and amortization

 

5,397

   

3,872

     

11,392

   

7,593

 

Interest expense

 

2,462

   

2,091

     

4,816

   

4,372

 

Interest income

 

(25)

   

(35)

     

(50)

   

(86)

 

Provision for income taxes

 

4,762

   

4,285

     

7,792

   

7,544

 

EBITDA

 

28,233

   

24,593

     

49,658

   

44,199

 

Gain on sale or disposition of assets and sublease (1)

 

(74)

   

(99)

     

(121)

   

(76)

 

Loss on early extinguishment of debt

 

   

     

   

136

 

Equity-based compensation expense

 

732

   

545

     

1,293

   

1,311

 

Public offering related expenses (2)

 

   

     

   

193

 

Acquisition related expenses (3)

 

274

   

246

     

832

   

530

 

Adjusted EBITDA (4)

$

29,165

 

$

25,285

   

$

51,662

 

$

46,293

 

Adjusted EBITDA Margin (4)

 

59.7

%

 

58.3

%

   

53.2

%

 

53.6

%

                           
   

(1)

Represents gain on the sale or disposition of assets as well as the (gains) losses on the sublease of a portion of the Company's corporate headquarters office building.

(2)

Represents costs incurred for compliance services performed during the six months ended June 30, 2016 in connection with RIHI's redemption of 5,175,000 common units in RMCO during the fourth quarter of 2015 (the "Secondary Offering").

(3)

Acquisition-related expenses include fees incurred in connection with the Company's acquisition and integration of certain assets of Tails, Inc. ("Tails") in October 2013, the six independent regions that were acquired during 2016 (New York, Alaska, New Jersey, Georgia, Kentucky/Tennessee and Southern Ohio, collectively, the "2016 Acquired Regions") and Motto.  Costs include legal, accounting and advisory fees as well as consulting fees for integration services.

(4)

Non-GAAP measure. See the end of this press release for definitions of Non-GAAP measures.

 

TABLE 6

 

RE/MAX Holdings, Inc.

Adjusted Net Income and Adjusted Earnings per Share

 (Amounts in thousands, except share and per share amounts)

(Unaudited)

                         
   

Three months ended 

 

Six months ended

   

June 30, 

 

June 30, 

   

2017

 

2016

 

2017

 

2016

Net income

 

$

15,637

 

$

14,380

 

$

25,708

 

$

24,776

Amortization of acquired intangible assets

   

4,806

   

3,534

   

10,229

   

6,975

Provision for income taxes

   

4,762

   

4,285

   

7,792

   

7,544

Add-backs:

                       

Gain on sale or disposition of assets and sublease (1)

   

(74)

   

(99)

   

(121)

   

(76)

Loss on early extinguishment of debt

   

   

   

   

136

Equity-based compensation expense

   

732

   

545

   

1,293

   

1,311

Public offering related expenses (2)

   

   

   

   

193

Acquisition related expenses (3)

   

274

   

246

   

832

   

530

Adjusted pre-tax net income

   

26,137

   

22,891

   

45,733

   

41,389

Less: Provision for income taxes at 38%

   

(9,932)

   

(8,699)

   

(17,379)

   

(15,728)

Adjusted net income (4)

 

$

16,205

 

$

14,192

 

$

28,354

 

$

25,661

                         

Total basic pro forma shares outstanding

   

30,256,442

   

30,196,190

   

30,239,536

   

30,170,070

Total diluted pro forma shares outstanding

   

30,283,402

   

30,228,595

   

30,280,164

   

30,213,033

                         

Adjusted net income basic earnings per share (4)

 

$

0.54

 

$

0.47

 

$

0.94

 

$

0.85

Adjusted net income diluted earnings per share (4)

 

$

0.54

 

$

0.47

 

$

0.94

 

$

0.85

                         
   

(1)

Represents gain on the sale or disposition of assets as well as the (gains) losses on the sublease of a portion of the Company's corporate headquarters office building.

(2)

Represents costs incurred for compliance services performed during the six months ended June 30, 2016 in connection with the Secondary Offering.

(3)

Acquisition-related expenses include fees incurred in connection with the Company's acquisition and integration of certain assets of Tails, the 2016 Acquired Regions and Motto. Costs include legal, accounting and advisory fees as well as consulting fees for integration services.

(4)

Non-GAAP measure. See the end of this press release for definitions of Non-GAAP measures.

 

TABLE 7

 

RE/MAX Holdings, Inc.

Pro Forma Shares Outstanding

(Unaudited)

                 
   

Three months ended 

 

Six months ended

   

June 30, 

 

June 30, 

   

2017

 

2016

 

2017

 

2016

Total basic weighted average shares outstanding:

               

Weighted average shares of Class A common stock outstanding

 

17,696,842

 

17,636,590

 

17,679,936

 

17,610,470

Remaining equivalent weighted average shares of stock outstanding on a pro forma basis assuming RE/MAX Holdings owned 100% of RMCO

 

12,559,600

 

12,559,600

 

12,559,600

 

12,559,600

Total basic pro forma weighted average shares outstanding

 

30,256,442

 

30,196,190

 

30,239,536

 

30,170,070

                 

Total diluted weighted average shares outstanding:

               

Weighted average shares of Class A common stock outstanding

 

17,696,842

 

17,636,590

 

17,679,936

 

17,610,470

Remaining equivalent weighted average shares of stock outstanding on a pro forma basis assuming RE/MAX Holdings owned 100% of RMCO

 

12,559,600

 

12,559,600

 

12,559,600

 

12,559,600

Dilutive effect of stock options (1)

 

 

4,360

 

 

10,047

Dilutive effect of unvested restricted stock units (1)

 

26,960

 

28,045

 

40,628

 

32,916

Total diluted pro forma weighted average shares outstanding

 

30,283,402

 

30,228,595

 

30,280,164

 

30,213,033

   

(1)

In accordance with the treasury stock method.

 

TABLE 8

 

RE/MAX Holdings, Inc.

Free Cash Flow & Unencumbered Cash

(Unaudited)

           
   

Six Months Ended June 30,

   

2017

   

2016

           

Cash flow from operations

$

32,941

 

$

27,032

Less: Purchases of property, equipment and software

 

(1,290)

   

(2,106)

Free cash flow (1)

 

31,651

   

24,926

           

Free cash flow

 

31,651

   

24,926

Less:  Tax/Other non-dividend distributions to RIHI

 

(6,450)

   

(5,144)

Free cash flow after tax/non-dividend distributions to RIHI (1)

 

25,201

   

19,782

           

Free cash flow after tax/non-dividend distributions to RIHI

 

25,201

   

19,782

Less:  Quarterly debt principal payments

 

(1,175)

   

(1,007)

Less:  Annual excess cash flow (ECF) payment

 

   

(12,727)

Unencumbered cash generated (1)

$

24,026

 

$

6,048

           

Summary

         

Cash flow from operations

$

32,941

 

$

27,032

Free cash flow

$

31,651

 

$

24,926

Free cash flow after tax/non-dividend distributions to RIHI

$

25,201

 

$

19,782

Unencumbered cash generated

$

24,026

 

$

6,048

           

Adjusted EBITDA

$

51,662

 

$

46,293

Free cash flow as % of Adjusted EBITDA

 

61.3%

   

53.8%

Free cash flow less distributions to RIHI as % of Adjusted EBITDA

 

48.8%

   

42.7%

Unencumbered cash generated as % of Adjusted EBITDA

 

46.5%

   

13.1%

   

(1)

Non-GAAP measure. See the end of this press release for definitions of Non-GAAP measures.

Non-GAAP Financial Measures

The SEC has adopted rules to regulate the use in filings with the SEC and in public disclosures of financial measures that are not in accordance with U.S. GAAP, such as Adjusted EBITDA and the ratios related thereto, Adjusted net income, Adjusted basic and diluted earnings per share (Adjusted EPS) and Free cash flow. These measures are derived on the basis of methodologies other than in accordance with U.S. GAAP.

The Company defines Adjusted EBITDA as EBITDA (consolidated net income before depreciation and amortization, interest expense, interest income and the provision for income taxes, each of which is presented in the unaudited condensed consolidated financial statements included in the Quarterly Report on Form 10-Q), adjusted for the impact of the following items that are either non-cash or the Company does not consider representative of its ongoing operating performance: loss or gain on sale or disposition of assets and sublease, loss on early extinguishment of debt, professional fees and certain expenses incurred in connection with the Secondary Offering, acquisition-related expenses and equity-based compensation expense. Adjusted EBITDA margin represents Adjusted EBITDA as a percentage of revenue. During the first quarter of 2017, the Company revised its definition of Adjusted EBITDA to better reflect the performance of the business and comply with SEC guidance. The Company now adjusts for equity-based compensation expense and no longer adjusts for straight-line rent expense and severance-related expenses. Adjusted EBITDA was revised in prior periods to reflect this change for consistency in presentation.

Because Adjusted EBITDA and Adjusted EBITDA margin omit certain non-cash items and other non-recurring cash charges or other items, the Company believes that each measure is less susceptible to variances that affect its operating performance resulting from depreciation, amortization and other non-cash and non-recurring cash charges or other items. The Company presents Adjusted EBITDA and the related Adjusted EBITDA margin because the Company believes they are useful as supplemental measures in evaluating the performance of its operating businesses and provides greater transparency into the Company's results of operations. The Company's management uses Adjusted EBITDA and Adjusted EBITDA margin as factors in evaluating the performance of the business.

Adjusted EBITDA and Adjusted EBITDA margin have limitations as analytical tools, and you should not consider these measures in isolation or as a substitute for analyzing the Company's results as reported under U.S. GAAP. Some of these limitations are:

  • these measures do not reflect changes in, or cash requirements for, the Company's working capital needs;
  • these measures do not reflect the Company's interest expense, or the cash requirements necessary to service interest or principal payments on its debt;
  • these measures do not reflect the Company's income tax expense or the cash requirements to pay its taxes;
  • these measures do not reflect the cash requirements to pay dividends to stockholders of the Company's Class A common stock and tax and other cash distributions to its non-controlling unitholders;
  • these measures do not reflect the cash requirements to pay RIHI Inc. and Oberndorf pursuant to the tax receivable agreements;
  • although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often require replacement in the future, and these measures do not reflect any cash requirements for such replacements;
  • although equity-based compensation is a non-cash charge, the issuance of equity-based awards may have a dilutive impact on earnings per share; and
  • other companies may calculate these measures differently so similarly named measures may not be comparable.
  • The Company's Adjusted EBITDA margin guidance does not include certain charges and costs. The adjustments to EBITDA margin in future periods are generally expected to be similar to the kinds of charges and costs excluded from Adjusted EBITDA margin in prior quarters, such as gain on sale or disposition of assets and sublease and acquisition related expenses, among others. The exclusion of these charges and costs in future periods will have a significant impact on the Company's Adjusted EBITDA margin. The Company is not able to provide a reconciliation of the Company's non-GAAP financial guidance to the corresponding U.S. GAAP measures without unreasonable effort because of the uncertainty and variability of the nature and amount of these future charges and costs.

Adjusted net income is calculated as Net income attributable to RE/MAX Holdings, assuming the full exchange of all outstanding non-controlling interests for shares of Class A common stock as of the beginning of the period (and the related increase to the provision for income taxes after such exchange), plus primarily non-cash items and other items that management does not consider to be useful in assessing the Company's operating performance (e.g., amortization of acquired intangible assets, gain on sale or disposition of assets and sub-lease, loss on early debt extinguishment, public-offering related expenses, acquisition-related expenses and equity-based compensation expense).

Adjusted basic and diluted earnings per share (Adjusted EPS) are calculated as Adjusted net income (as defined above) divided by pro forma (assuming the full exchange of all outstanding non-controlling interests) basic and diluted weighted average shares, as applicable.

When used in conjunction with GAAP financial measures, Adjusted net income and Adjusted EPS are supplemental measures of operating performance that management believes are useful measures to evaluate the Company's performance relative to the performance of its competitors as well as performance period over period. By assuming the full exchange of all outstanding non-controlling interests, management believes these measures:

  • facilitate comparisons with other companies that do not have a low effective tax rate driven by a non-controlling interest on a pass-through entity;
  • facilitate period over period comparisons because they eliminate the effect of changes in Net income attributable to RE/MAX Holdings, Inc. driven by increases in its ownership of RMCO, LLC, which are unrelated to the Company's operating performance; and
  • eliminate primarily non-cash and other items that management does not consider to be useful in assessing the Company's operating performance.

Free cash flow is calculated as cash flows from operations less capital expenditures, both as reported under GAAP, and quantifies how much cash a company has to pursue opportunities that enhance shareholder value. The Company believes free cash flow is useful to investors as a supplemental measure as it calculates the cash flow available for working capital needs, re-investment opportunities, potential independent region and strategic acquisitions, dividend payments or other strategic uses of cash.

Free cash flow after tax and non-dividend distributions to RIHI is calculated as free cash flow less tax and other non-dividend distributions paid to RIHI (the non-controlling interest holder) to enable RIHI to satisfy its income tax obligations. Similar payments would be made by the Company directly to federal and state taxing authorities as a component of the Company's consolidated provision for income taxes if a full exchange of non-controlling interests occurred in the future. As a result and given the significance of the Company's ongoing tax and non-dividend distribution obligations to its non-controlling interest, free cash flow after tax and non-dividend distributions, when used in conjunction with GAAP financial measures, provides a meaningful view of cash flow available to the Company to pursue opportunities that enhance shareholder value.

Unencumbered cash generated is calculated as free cash flow after tax and non-dividend distributions to RIHI less quarterly debt principal payments less annual excess cash flow payment on debt, as applicable. Given the significance of the Company's excess cash flow payment on debt, when applicable, unencumbered cash generated, when used in conjunction with GAAP financial measures, provides a meaningful view of the cash flow available to the Company to pursue opportunities that enhance shareholder value after considering its debt service obligations.

Contacts:

Andy Schulz
Investor Relations
(303) 796-3287
aschulz@remax.com

Jason Lindaman
Media Relations
(303) 796-3546
jlindaman@remax.com

View original content:http://www.prnewswire.com/news-releases/remax-holdings-reports-second-quarter-2017-results-300499415.html

SOURCE RE/MAX Holdings, Inc.

###

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